Nobody really wants to dwell on such a gloomy eventuality, and moreover think about how they’ll cope in the short and medium-term aftermath (both emotionally and financially), but for some people the grim reality is that their spouse/parent/guardian’s life insurance policy WON’T pay-out should the policyholder pass away.
Losing someone close in itself is challenging beyond belief on so many levels; and unfortunately there are instances when a life insurance provider will NOT recompense the supposed beneficiaries of the dearly (and recently) departed.
As you’re probably already well aware, life insurance (in effect) is there to help cushion the often devastating financial blow which impacts many of us as a direct result of the death of a loved one.
Nothing can compensate for the pain and stress associated with somebody close passing away, however a life insurance plan can at least ease the immediate and on-going monetary burden which might present itself; and be something which preys on the minds of the dependents who survive the policyholder, once they’ve begun to come to emotional terms with their loss.
But what if that financial lifeline didn’t materialise? What if it was contested by the insurance provider? On what legal grounds could they keep what should be yours? That’s why it’s imperative that you’re aware of – and fully understand – the potential instances where life insurance won’t pay-out…
We all might be guilty of telling the odd little porkie, yet we all know proper lies get you nowhere in life, full stop. And what’s more, it REALLY doesn’t help you/your family in your bid to receive life insurance pay-outs, trust us.
So avoid non-disclosure – or good old fashioned fraud – if you’re wanting to provide for your dependents when your number’s up in life. Some cases of non-disclosure are perhaps more complex than others, yet others aren’t. For example if you’re diagnosed with a known life-shortening condition or illness and fail to disclose this on your life insurance application form, any future claim can be justifiably refused by the provider.
Honesty is always best practice so as to ensure that all parties are singing from the same hymn sheet from the off, and by honesty we mean painting an accurate picture of the policyholder’s general health and lifestyle.
Bring about your own premature end intentionally and nobody wins. Certainly not within the first 12 months of any life insurance policy agreement being ratified and actioned that’s for sure.
That said, once this passage of time has lapsed you can expect to receive a pay-out if this set of tragic circumstances come to bear. Although not always, as some UK insurers cite the non-disclosure of mental health issues as an underlined reason as to why a claim might be rejected.
It all makes sense, especially the implementation of this precautionary measure to effectively safeguard against someone taking out a sizeable life insurance policy with a (somewhat macabre) view of taking their own life to get their families/dependents out of financial hock.
Outliving your policy
Perhaps the most common cause of non-payouts is the policyholder outliving their term life insurance policy.
This type of life insurance protects you for a fixed amount of time – say you’re 30-years of age when you decide to arrange a 40-year fixed term life insurance policy, which means that you’re 70-years of age (if you’re still with us) when it runs out. Die 12 months down the line at 71, and your dependents will not receive a payout.
As long as thought carefully about the length of time you were covered, this shouldn’t cause a problem. Fixed term life insurance plans are generally used to cover the length of a mortgage and/or to make sure children have grown up, been educated and are self-sufficient before you pass away.
And as life expectancy continues to grow year on years, courtesy of healthier lifestyles amongst other factors, the chances are you’ll out-see the financial usefulness of the policy. Having said that many of these type of fixed term plans are designed to come to an end (before you do) at 70-years of age (both level life and decreased life plans are geared up for this cut-off point), yet whole life insurance packages will thankfully cover the policyholder until such time as they pass away.
Being diagnosed with a terminal illness
Should a life insurance policyholder be struck down with a terminal then they may not be entitled to a full pay-out. The good news (if there really is any positive news to be had in this hypothetically awful situation) is that dependents will be able to claim an early pay-out lump sum, which financially amounts to a percentage reduction of the full figure, the percentage depending on the time remaining on the uncompleted term.
Also if the policyholder is diagnosed with a terminal illness within 12 months of the plan ending then the insurer isn’t obliged to settle early, but instead only once the insured party has passed. For the record, a terminal illness is one which is defined as ‘a rapidly progressing sickness or condition, where the life expectancy is deemed to be a time no more than 12 months in duration, and which offers no known cure’.
That’s right, certain policies might well be compromised (or worse still, completely contravened) if the policyholder takes it upon themselves to travel – or indeed, live – outside some pre-determined geographical areas for an enduring amount of time.
Such locations include outside of the European Union as well as more exotic and far flung destinations like America, Canada, Australia, New Zealand and the Isle of Man and the Channel Islands for longer than 12 months consecutively.
We’re not talking about incriminating family stuff, more change of personal details which could affect an existing life insurance plan.
The last thing on our minds when negotiating/fine-tuning a life insurance policy at the beginning of its long term is about our personal situations and circumstances altering in the future, and once the documentation is rubber stamped that’s the last we think about it – save for the annual premium payments of course.
But inevitably changes take place in our lives and times, and when they do we should be mindful that we owe it to our life insurance providers (and subsequently our dependents in the long run) to keep them abreast of any amendments as and when they crop up. That way the risk of our policies becoming null and void isn’t posed.
Such examples include when we get married, have children, buy a house, move to a different property, change employer, land an even better job, etc. All of which could necessitate revisions to your life insurance policies for a variety of individual reasons and which result in increasing the sum assured or reviewing and renegotiating the deal from the ground up.
Neglect to do this and you could wind-up under-insured, and should your dependents benefit from a life insurance windfall in the future, the chances are it won’t cover what you had saved for and more pressingly, what they will need.
What should I do if my life insurance claim is dismissed?
The bottom-line is that this is rarely the case, as insurance industry-supported figures habitually reveal.
However if you’re one of the unfortunate stats then there are things you can do to contest the decision. Firstly you should address your life insurance claims provider, following their official disputes/complaints protocol and process. If this doesn’t change their hearts, then you are perfectly entitled to take your case to the independent arbitrator and fiscal regulatory body, the Financial Ombudsman Service (or the FOS). They will sit in judgement on your case and decide which party is right after looking into both sides of the argument/stand-off.
If the FOS concludes that the policyholder’s claim was unlawfully rejected and consequently rule in your favour, then it has the power to enforce that the life insurance company either rectifies the outstanding issue or compensates you from a monetary perspective.
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